Do Kwon, a South Korean cryptocurrency entrepreneur and co-founder of Terraform Labs, on Thursday pleaded not guilty to a series of criminal fraud charges in federal court in Manhattan.
This comes just days after his extradition from Montenegro, where he had been detained for more than a year. His case centers on the collapse of TerraUSD and Luna (LUNC), which together lost an estimated $40 billion in 2022.
He was ordered to remain in custody after appearing in court
According to Reuters a reportFederal prosecutors unsealed a nine-count indictment charging Kwon with multiple crimes, including securities fraud, wire fraud, commodity fraud, and conspiracy to commit money laundering.
Related reading
Kwon appeared in court, wearing an olive green long-sleeved shirt and black track pants, alongside his lawyer, Andrew Chesley, who indicated that they would not seek bail at this time.
Following Kwon’s plea, US District Judge Robert Lerberger reportedly ordered him to be kept in custody. Do Kwon left the courtroom with a copy of the 79-page indictment, and is scheduled to return for another hearing on January 8.
Repercussions of alleged fraud and market manipulation in Do Kwon
In June, Kwon reached a civil settlement with the US Securities and Exchange Commission (SEC), agreeing to pay an $80 million fine and accept a ban from participating in cryptocurrency transactions. This settlement was part of a broader $4.55 billion resolution related to alleged misconduct in Terraform Labs’ management.
The indictment details how Kwon misled investors about the stability of TerraUSD, a stablecoin designed to maintain the value of $1. In May 2021, when the value of the stablecoin began to falter, Kwon reportedly claimed that a computer algorithm known as “Terra Protocol” had successfully restored its peg.
In fact, prosecutors allege that Do Kwon orchestrated a scheme that involved a high-frequency trading firm to secretly purchase TerraUSD for millions of dollars to artificially inflate its price.
Related reading
This reportedly prompted both retail and institutional investors to purchase Terraform products, dramatically increasing the value of Luna, another token tied to TerraUSD, to as much as $50 billion by the spring of 2022. The indictment states that “much “This growth came after Kwon’s brazen move.” Deception about Terraform and its technology.
However, the situation took a turn for the worse in May 2022 when the value of TerraUSD started to decline again. The brand, which Kwon previously backed, warned that maintaining its value “wasn’t so simple this time.”
The subsequent collapse of both TerraUSD and Luna sent shockwaves through the cryptocurrency market, resulting in significant losses for investors and contributing to a broader downturn that affected other digital assets, including Bitcoin (BTC).
While plaintiffs have not revealed the identity of the trading company in question, SEC lawyers have previously indicated that Jump Trading played a role in supporting TerraUSD during its May 2021 peak.
Featured image of DALL-E, chart from TradingView.com